Are Hilton’s Q3 challenges mere speed bumps, or more serious signs?

Group bookings may be booming and business travel on the upswing, but during a third-quarter earnings call in late October, Hilton CEO Christopher Nassetta said the past few months have seen their challenges.

Hilton’s Q3 RevPAR increased 1.4% year over year but fell short of company guidance, which Nassetta attributed to a “slower ramp in September following Labor Day, weather impacts, unfavorable calendar shifts and ongoing labor disputes in the U.S.” Nassetta also said that leisure demand is currently “flat, to maybe even down a little bit.”

Analysts had mixed reactions, with some citing concerns around a spending downturn and others saying these disruptions represent typical industry speed bumps and that the U.S. market’s moderating leisure demand indicates a shift back to historical patterns.

“There are always things that happen that affect travel unexpectedly, whether it’s weather, storms, strikes — I call them ‘ankle-biters,'” said Michael Bellisario, a senior research analyst at Baird. “All of this has happened before, and it happens more than we realize. And in the U.S., we’re also just getting back to normal growth rates.”

That’s not to say that analysts aren’t keeping a close eye on the impact of labor actions on hotel performance. Since early September, the Unite Here hospitality union has orchestrated rolling strikes at hotels flagged under companies like Hilton, Hyatt Hotels Corp. and Marriott International across multiple U.S. cities, including Boston, Honolulu and San Francisco.

Patrick Scholes

“It’s been a pretty elongated [series of] strikes,” said Patrick Scholes, managing director of lodging and leisure equity research at Truist Securities, adding that while Hilton, as a global corporation, may see limited impact from these actions, individual property owners face more significant challenges.

The Hilton Hawaiian Village Waikiki Beach Resort, owned by Park Hotels & Resorts, stands out as a particularly notable case, being “far and away” Park’s most important property, Scholes said of the 2,860-room Honolulu resort, also one of the largest in Hawaii. “And certainly, [one would] suspect there’s some sort of financial impact there.”

In an Oct. 29 press release on its third-quarter results, Park said that it was “not in a position to update its full-year 2024 outlook at this time due to the uncertainty surrounding continuing negotiations between Park’s operators and labor unions.”

Meanwhile, Sunstone Hotel Investors, which owns the 1,190-room Hilton San Diego Bayfront, said on Oct. 10 that it was forced to lower its earnings expectations due to strike-related cancellations of group events and “overall lower business volume.” (Sunstone also said it had successfully reached a contract agreement with union members and that the hotel had resumed normal operations.)

Market observers are also closely tracking the broader shift in leisure travel patterns, particularly among more value-conscious consumers.

Jan Frietag

“The lower-end American consumer just continues to be affected by higher prices of everything, so their discretionary spend continues to be subdued,” said Jan Freitag, national director for hospitality market analytics at CoStar Group. “And that does not help the lower end of the scale, economy-type property.”

A concern is whether this more subdued spending could extend beyond the budget segment.

“There is normalization occurring,” Bellisario said. “We saw it first at the lower end, and now maybe that has turned into some underlying weakness, and it’s working its way up.”

During Marriott International’s third-quarter earnings call earlier this week, Marriott CEO Anthony Capuano told analysts that leisure transient RevPAR for the quarter was flat, though he emphasized that the segment was still well above 2019 levels.

Some of the leisure pullback may also be driven by the simple fact that consumers are no longer limited in their travel options, unlike during the pandemic, while normalized office and school schedules have reduced flexibility around travel dates. 

“The supply of travel, flights, cruises, Airbnb and borders is effectively open,” Bellisario said. “People are traveling for business. Kids are in school, and conferences and conventions are happening. There’s just less days to travel, and there’s more supply of travel options, so people are more price conscious. I don’t need a beach in Florida at $2,000 a night now, because I can go to any beach, anywhere in the world.”

Despite the challenges, analysts touted several positive indicators. Group business, for example, continues to be the industry’s standout growth category, though patterns have evolved.

“It’s a bit more of these smaller groups, with a very short booking window,” Freitag said. “Because people aren’t all in the office all the time together, we have this new generation of group travel, where it’s people saying, ‘Oh, in three weeks, let’s just get 60 people together.'”

Business transient travel continues its steady recovery, with Hilton’s Nassetta saying he expects it to “surpass prior peaks of 2019 in terms of demand level” next year.

Freitag noted similar patterns. 

“With business transient demand, there’s still a little bit of room to grow midweek, but we’re certainly seeing that come back at a healthy clip,” he said.

Looking ahead, analysts expect travel patterns to increasingly align with traditional economic indicators.

“Everything should track more closely in 2025 to GDP, business profitability, consumer confidence — all the historical demand generators, [key performance indicators] and inputs that we’ve focused on and that kind of broke down for the last three or four years during the pandemic,” Bellisario said. “The underlying trends are, in aggregate, pretty steady to good.”